Global miner Rio Tinto raised its offer for Mozambique-focused coal miner Riversdale Mining to $3.9 billion in a final bid to woo key shareholders who have held up the deal and gain control of coveted coal assets.
Investors doubted the move would be enough to secure the 50.1 percent acceptances Rio wants and sent Riversdale's shares down as much as 2.4 percent.
The market's clearly a bit skeptical that it will get across the line, said Peter Chilton, an analyst at Constellation Capital Management, which owns shares in Rio Tinto.
Rio Tinto raised its offer price by 3 percent to A$16.50 per share on Thursday and extended the offer period for the third time, to April 1, but said the new offer was its final one if there were no competing offers.
Standing in Rio's way are India's Tata Steel , the world's No. 7 steelmaker, and top Brazilian steel producer CSN , who have increased their stakes in Riversdale since the bid and now hold a combined 47 percent.
Without their support, Rio would need nearly 100 percent acceptances from the rest of Riversdale's shareholders to get majority control.
It's going to be quite hard, Chilton said.
As of March 4, Rio Tinto only had acceptances on 17.9 percent of Riversdale's shares.
Tata Steel and CSN have both said they are mainly interested in securing coking coal from Riversdale. Tata, which already has a stake in Riversdale's Benga coking coal project in Mozambique, has said it was talking to Rio about a range of options.
CSN has not publicly revealed its intention over the Riversdale stake or about its possible talks with Rio Tinto.
Analysts said the two companies would probably like to see Rio Tinto, with deeper pockets and more technological skills than Riversdale, developing Riversdale's Mozambique mines and infrastructure.
There is no question that Rio Tinto's expertise is crucial to overcoming the development challenges of Riversdale's projects, Rio Tinto Energy chief executive Doug Ritchie said in a statement.
If Rio did not take over Riversdale, shareholders would be likely to face big equity raisings by Riversdale to help fund the development of its coking coal projects.
It's difficult to see that Tata Steel and the Brazilians really want to be involved in what would be very expensive coal development projects, Chilton said.
Complicating talks is China's third-largest steel maker, Wuhan Iron and Steel Corp <600005.SS>, which had an agreement to buy a 40 percent stake in Riversdale's Zambeze coal project in Mozambique, with rights to coal supply from Zambeze and Riversdale's other key project, Benga.
Riversdale's shares last traded down 0.5 percent at A$15.05, about 9 percent below the offer price, after touching a low of A$14.77. Rio's shares fell 1.5 percent in a broader market that was down 0.8 percent.
(Reporting by Sonali Paul and Balazs Koranyi; Editing by Ed Davies and Dhara Ranasinghe)